Hungary’s Plans to Become Regional Energy Hub Gather Pace

Sonja Bencze

Friday, October 6, 2017

Recent moves in the Hungarian gas market may promote the country’s aim of becoming a regional hub. The field of electromobility has also taken a step ahead, with legislation bringing some clarity to market players.

Summer legislation on the pricing of electric charging has been welcomed, although a large increase in the network of stations (the one pictured is in Downtown Budapest) is still some way off.

While summer may not be the busiest period in business, the Hungarian gas market has seen much more activity lately.

Among this was one unexpected move by the Hungarian transmission system operator FGSZ Földgázszállító Zrt., which announced in July that it was no longer in a position to hold an open season on the Romanian-Hungarian-Austrian section of the pipeline (BRUA).

The project, which is backed by the European Union, was going to link Bulgaria to the central European Baumgarten hub in Austria. The source of natural gas in the pipeline could either come from the Black Sea, or from the Caspian region. The idea behind it was to improve security of supply by the end of the decade by connecting the Black Sea gas reserves into the European gas infrastructure.

However, FGSZ and Transgaz, the Technical Operator of the Natural Gas Transmission System of Romania, said the only “economically viable” part of the BRUA pipeline would be the existing Romania-Hungary interconnector, and decided to hold a binding open season procedure to allocate the capacities of the ROHU transmission corridor – excluding their Austria partner. The authorities say capacities could be expanded

from
4.4 billion
cubic meters
(bcm) to 5.26 bmc/year.

The move is in line with Hungary’s long-term aim of becoming a regional gas hub. Not only is the country well positioned geographically, it has abundant storage capacities, much of which lays idle.

Security of Supply

Although current legislation demands gas traders store a certain amount of their annual capacities in these storages, more would be needed to make storage facilities profitable. To achieve this, more gas should be stored on a market basis, and traders should be offered deals that would make them store capacities beyond the mandatory rate.

Not only would this improve the quality of storage capacities, which deteriorate quickly if unused, it would also improve security of supplies.

As a result of the increased demand for a prolonged time, and/or failures in their power generation systems, some countries, indeed regions, experienced capacity shortages. They were forced to replace the shortfall with energy of more expensive resources which, in deregulated markets, made prices skyrocket. Although household electricity and gas prices are regulated in Hungary, unexpected outages at a number of power plants, including the Paks nuclear plant, taking place at a time during periods of high demand in December and January, caused price spikes on the Hungarian power exchange, HUPX.

To avoid such events and ensure uninterrupted supply, the European Union recently approved a regulation that aims at preventing gas supply crises. According to the legislation, member states are required to prepare for and manage gas shortages through regional cooperation. Beyond that, the new rules put solidarity first when it comes to dealing with disruptions to gas supply.

For regulators, periods of peak demand require a lot of coordination and can sometimes cause issues. From an economic viewpoint, however, such periods may promote investment in new peak-load capacities or the maintenance of these kinds of power plants that would otherwise be closed in an extended low price environment, according to a policy brief by REKK. Similar demand shocks can be satisfied not only by maintaining or expanding the current power plant portfolio, but also by expanding cross- border capacities, the study adds.

Hungary’s intention of becoming a regional gas hub may further strengthen as a result of a switch to euro-based trading at the gas bourse. CEEGEX natural gas bourse shifted to euro -based trading on October 2 in response to feedback from stakeholders, who had long been looking to the platform to change from forint-based trading.

Electric Charging

Another long-awaited piece of legislation in the energy sector was published this summer, this time on the pricing of electric charging. Operators and owners of electric chargers/filling infrastructure can decide whether they want to apply time-based or kilowatt-hour-based charging.

Which method will become widespread, no one can say. A time-based method may be unfavorable for owners whose cars have a lower-capacity battery, as charging these takes more time. Though the market has welcomed the arrival of the legislation, as it brings some clarity to field, a significant increase in the number of filling stations will only come when the number of electric cars in Hungary also rises.

“To achieve that investment into electric filling infrastructure in the future, more steps are needed,” Balázs Felsmann, president of the Hungarian Energy Traders’ Association told the Budapest Business Journal.

Today, legislation differentiates between operators and service providers. Permits are given to those who own filling infrastructure/charging points and service providers are not necessarily operators, so this cross-over between fields is not resolved, he explained. Since no one knows in which direction the field will move, there is much uncertainty, Felsmann added.

Building infrastructure therefore is regarded more as an investment into the future, a must for players who aim to be active in the field of electromobility later.

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